Going public is a significant initiative for any business. It’s one of the quickest ways to raise money and secure a successful IPO. However, going public isn’t as easy as it sounds. It requires significant alterations in your company’s corporate and management structures. Moreover, IPOs can be immensely costly and lead to public disclosure. Therefore, there are certain unavoidable factors you need to be careful about when deciding to go public.
The first step in making your company public is to hunt for a bank with solid advisory services. The bank can also guide you with underwriting, which is an essential step for official government approval. After approval, officials set stock prices, and from this point on, you are officially a public limited company.
Even though several complications are involved in going public, plenty of companies still decide to take this step. But why? It is because of the numerous benefits public businesses enjoy—some of which we have mentioned below.
Increased access to capital
The most apparent advantage of having a public business is the increased capital and capital raising opportunities. It is a common assumption amongst people that public enterprises are more profitable. Hence, they are more willing to invest in them.
Moreover, as a public company, you will be allowed to sell stock to the public and raise more money. Estimates show that an average successful IPO can raise about $100 million since you can keep issuing more stock in the future.
However, maintaining investor (shareholder) relationships is highly critical for ensuring the future success of your business. Therefore, companies must hire competent accounting professionals who can manage company investors and monitor cash flows. For this purpose, you should consider hiring individuals possessing online masters in accounting no GMAT as they couple online education with industry experience. The ease of eLearning allows them to focus on work, developing sound financial acumen crucial for navigating stock market trends and meeting shareholder expectations.
Increased public awareness
IPO’s ensure publicity by raising awareness about a company’s goods and services. Nationwide newspapers print information about your company. Consequently, more potential buyers find out about your business, leading to increased market share and goodwill. Your business also receives more attention in the press.
Increased public awareness can also enhance your relationships with your existing customers and suppliers. Additionally, your suppliers and lenders might be more willing to negotiate your credit terms.
However, it is crucial not to get enraptured with the publicity. More publicity can also increase your chances of getting lawsuits because of a minor mistake. Also, your IPO restricts you from making specific information public, so be vigilant with what you disclose to the public.
Using stock in management packages
Another beneficial element of going public is the allowance to use stock as an incentive for management and trainees. In understandable terms, it means providing employees equity in the business. Offering stock compensation helps companies recruit the best of talents and enhance employee performance and productivity.
It is also an effective motivational tool since employees who own shares also become part-owners of the company. As part-owners, employees align their interests with that of the shareholders, propelling the company to greater heights by leveling the playing field.
It is a standard practice of attracting, incentivizing, and retaining the best talent in the market.
Value of securities
Perhaps the most lucrative advantage of a business going public is the increased value of securities. As mentioned above, investors are keener towards investing in public companies as opposed to private entities. It is also a primary reason why many executives decide to make their business public in the first place.
The value of securities is crucial for numerous reasons. For one, it reduces liabilities. It also decreases the need for insurance and other deductibles businesses have to incur. All of this lowers business costs and increases revenue. Securities also boost a business’s reputation in the industry, deeming it credible as state authorities govern public entities.
IPO provides public valuations
Since your company is now public, you are open to public valuations. Valuations can help make essential business decisions like mergers and acquisitions much easier.
Valuation is highly critical. It helps business owners closely inspect all opportunity costs before agreeing on a vital business transition. It helps provide a solid overview of all of the business’s strengths and weaknesses, leading to a more informed decision. Business valuations also help gain specific numbers that help in reinvesting, insurance coverage, etc. You can also obtain an accurate, concise, and precise image of your company’s value through a valuation process. Furthermore, it also provides black and white statistics about your company’s resale value which are highly useful during negotiations in the selling process.
Lastly, a detailed and accurate valuation is necessary to appraise business stocks to provide shareholders with an estimate. It also helps attract more investors because you’ll be in a position to show them that their funds will tremendously help the business grow.
Public companies have increased access to government security and regular scrutiny. They also have a higher cash flow and lesser restrictions as opposed to private businesses.
The benefits public companies enjoy are immense, as is well-established in the points given above. However, even public companies face downfall if not managed properly. Hence, if you are deciding to make your business public, remember, good leadership is critical.